Charities unite to save deductions

Graphics

Proposals to cap or otherwise limit deductions in order to raise tax revenue from the wealthy are gaining bipartisan support in Washington — and making charities and nonprofits very worried.

Concerned that special tax benefits to encourage Americans to give to charity might be significantly curtailed in the negotiations between President Barack Obama and House Speaker John Boehner, scores of nonprofit leaders came to Washington this week for a coordinated lobbying effort.

“Normally, every nonprofit is focused on its own particular mission, whether saving the environment, or helping children, or imbuing a greater appreciation for art,” said Diana Aviv, the chief executive of Independent Sector, an umbrella group for nonprofits that helped organize this week's effort. “For the first time, I've seen the sector coming together. We're like Rip Van Winkle waking up and saying, `This is not OK!' ”

At stake is the $300 billion that Americans donate to nonprofits every year — and the $50 billion a year that tax deductions for charitable giving costs the government.

Both Republicans and Democrats say they want to maintain tax laws that encourage Americans to give money to nonprofit groups. But with the White House looking to raise an additional $1.6 trillion in revenue over 10 years, and Republicans looking to raise $800 billion, there is growing bipartisan support for peeling back some of the special breaks for high-income households.

That prospect has spurred Aviv and other nonprofit leaders to meet with high-ranking Obama aides for what participants described as a passionate discussion — if one largely about arcane matters.

The charity participants laid out their fears about lost revenue and abrogated programs, even if donations only dip at the margins.

The White House — represented by senior adviser Valerie Jarrett, chief of staff Jacob Lew, Gene Sperling of the National Economic Council and Cecilia Munoz of the Domestic Policy Council — shared concerns about tax changes that might unduly cut into charitable giving.

But officials said revenue had to come from somewhere.

On Capitol Hill on Wednesday, leaders from local nonprofits like churches, schools and homeless shelters visited lawmakers to deliver the same message.

“So much of this Washington debate is focused on high-end taxpayers,” said Steve Taylor, public policy counsel for the United Way Worldwide. “From our perspective, that's not what it's about. It's about the people who will have less access to the services our charities provide.”

“If this benefit goes away, who's going to pick up the slack?” he said. “Definitely not the government. It's the only deduction that directly impacts community benefit. Cutting it — it defies the logic of cutting, I think.”

Charities said that little of what they were hearing behind closed doors allayed their fears that, in a rush to cut long-term budget deficits, Congress might also end up cutting charitable giving.

“There is no elected official who would rather say, ‘I had to cut your program' than ‘There is a process that resulted in your program being cut,' ” said Christopher W. Hansen, the president of the American Cancer Society's Cancer Action Network. “But if you design a deduction cap the wrong way, you decimate the charitable sector.”

Both Democrats and Republicans have shown a willingness to roll back some deductions for high-income households, and more broadly to clean up the $1 trillion a year in tax breaks in the code. But how they might agree to do that remains unclear.

One option, floated by Mitt Romney, the former Republican presidential candidate, is capping the total amount a household could deduct at perhaps $25,000 or $50,000.

Another proposal, backed by the White House, is limiting the value of the charitable-giving deduction to 28 percent from the current cap of 35 percent for households with income above $250,000 a year.

Economists and policy experts are divided on how much such proposals may reduce charitable giving.

Capping the value of the deduction, as the White House has suggested, might reduce giving by as much as $7 billion a year out of $300 billion overall, according to an estimate by Independent Sector.

But other estimates have proved more moderate. For instance, the Center on Philanthropy at Indiana University last year analyzed the Obama administration's proposal to increase marginal tax rates and cap the value of charitable giving. It estimated that itemized giving would have declined just 0.4 percent in the first year after being put in place and 1.3 percent in the second.

“This suggests a relatively small direct impact, but combined with the weak economic climate, funding reductions and increased demand for services already affecting some nonprofits and their constituents, these changes are likely to have an additional negative effect in the long term,” said Patrick M. Rooney, executive director of the Center on Philanthropy.

The Obama administration said that concerns over charitable giving are driving its push to get Republicans to allow the Bush-era tax cuts to expire for income over $250,000 a year. To raise $800 billion in tax revenue from the wealthy solely by scrubbing the code clean would require eradicating too much of the incentive for charitable giving, it said.

“You cannot get the kind of revenue that you need simply from capping deductions or closing loopholes without taxing the heck out of the middle class — and that's unacceptable for the president — or without ending the charitable deduction or doing other things that would never fly on Capitol Hill, for good economic as well as political reasons,” said Jay Carney, the White House press secretary.

User Agreement

Keep it civil and stay on topic. No profanity, vulgarity, racial
slurs or personal attacks. People who harass others or joke about
tragedies will be blocked. By posting your comment, you agree to
allow Orange County Register Communications, Inc. the right to
republish your name and comment in additional Register publications
without any notification or payment.